Lectures in Macroeconomics- Charles W. Upton The Incidence of Taxes.
Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.
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Transcript of Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.
![Page 1: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/1.jpg)
Lectures in Macroeconomics- Charles W. Upton
The Laffer Curve
0100%
Revenues
$X
*
![Page 2: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/2.jpg)
The Laffer Curve
Do Tax Cuts Cut Revenues?
0
100%Tax Rate as a % of Y
Revenues
$X
![Page 3: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/3.jpg)
The Laffer Curve
Do Tax Cuts Cut Revenues?
0
100%Tax Rate as a % of Y
Revenues
$X
![Page 4: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/4.jpg)
The Laffer Curve
0% or 100% Rate = Zero
0
100%Tax Rate as a % of Y
Revenues
$X
![Page 5: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/5.jpg)
The Laffer Curve
A 10% Rate
0
100%Tax Rate as a % of Y
Revenues
$X
$Y
10%
![Page 6: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/6.jpg)
The Laffer Curve
A 10% Rate
0
100%Tax Rate as a % of Y
Revenues
$X
$Y
10%
![Page 7: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/7.jpg)
The Laffer Curve
Pushing Our Luck
0
100%Tax Rate as a % of Y
Revenues
$X
$Y
10%
![Page 8: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/8.jpg)
The Laffer Curve
There Comes a Point
0
100%Tax Rate as a % of Y
Revenues
$X
$Y
10% *
“tau”
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The Laffer Curve
Its downhill
0
100%Tax Rate as a % of Y
Revenues
$X
$Y
10% *
“tau”
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The Laffer Curve
The Laffer Curve
0100%
Revenues
$X
*
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The Laffer Curve
The Laffer Curve
0100%
Revenues
$X
*
The logic is flawless. There is some rate that maximizes tax revenues.
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The Laffer Curve
The Laffer Curve
0100%
Revenues
$X
*
Are we here?
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The Laffer Curve
The Laffer Curve
0100%
Revenues
$X
*
Are we here?
If the tax rate is above *, cutting taxes raises revenue.
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The Laffer Curve
The Laffer Curve
0100%
Revenues
$X
*
Are we here?
The revenue decline above * is due to incentive effects and avoidance.
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The Laffer Curve
The Laffer Curve
0100%
Revenues
$X
*
Are we here?Or here?
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The Laffer Curve
The Laffer Curve
0100%
Revenues
$X
*
Are we here?Or here?
If the tax rate is below *, cutting taxes lowers revenue.
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The Laffer Curve
The 1964 Tax Cuts
0100%
Revenues
$X
*
In 1964, the top marginal rate was cut from 91% to 70%. We may have been above *.
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The Laffer Curve
The 1981 Tax Cuts
0100%
Revenues
$X
*
In 1981, we cut the top rate to 50%. Some claimed we were above *. Most economists don’t think so
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The Laffer Curve
The 1986 Reforms
0100%
Revenues
$X
*
In 1986, we cut the top rate to 31% by eliminating some exemptions. Again, some claimed we were above *.
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The Laffer Curve
Today
0100%
Revenues
$X
*
Most economists think overall rates are below *. But perhaps a $1 cut only costs us 67¢
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The Laffer Curve
Specialized Taxes
0100%
Revenues
$X
*
There are specific taxes where the Laffer Effect probably works.
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The Laffer Curve
Cigarette Taxes
0100%
Revenues
$X
*
A city raising cigarette taxes might get less revenue.
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The Laffer Curve
Cigarette Taxes
0100%
Revenues
$X
*
Suppose NYC raised taxes $1 a pack, so cigarettes went from $7 to $8 a pack.
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The Laffer Curve
Cigarette Taxes
0100%
Revenues
$X
*
If =-0.2, a 14% rise should reduce demand by 3%. Not enough to reduce revenue.
%D = %P x ()
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The Laffer Curve
Cigarette Taxes
0100%
Revenues
$X
*
But what about tax avoidance? Smuggle cigarettes in from NC, NJ, CT?
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The Laffer Curve
Capital Gains Taxation
0100%
Revenues
$X
*
If you own common stock, hold it for more than a year before selling it, your top tax rate is 20%
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The Laffer Curve
Capital Gains Taxation
0100%
Revenues
$X
*
One of the arguments given for cutting capital gains taxation was the Laffer Curve.
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The Laffer Curve
Supply Side Economics
We know taxation has an impact on the demand for GDP; that is how we cut C and I to make room for G.
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The Laffer Curve
Supply Side Economics
Supply side economics talks about making the pie bigger.
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The Laffer Curve
Supply Side Economics
1tttt LKAY
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The Laffer Curve
Supply Side Economics
1tttt LKAY
How do taxes impact A?
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The Laffer Curve
Supply Side Economics
1tttt LKAY
How do taxes impact A?
How do taxes impact
K?
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The Laffer Curve
Supply Side Economics
1tttt LKAY
How do taxes impact A?
How do taxes impact
K?
How do taxes impact
L?
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The Laffer Curve
Supply Side Economics
1tttt LKAY
That requires a detailed look at taxes
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The Laffer Curve
Militant Supply Siders
Size of National Pie
% Taken for Taxes
0% 100%
The higher the percent of GDP taken by taxes, the lower the value of GDP
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The Laffer Curve
Militant Supply Siders
Size of National Pie
% Taken for Taxes
0% 100%
They have a point. Take 100%, and your remove all incentives.
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The Laffer Curve
Militant Supply Siders
Size of National Pie
% Taken for Taxes
0% 100%
GDP will be zero.
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The Laffer Curve
Militant Supply Siders
Size of National Pie
% Taken for Taxes
0% 100%
This is simplistic. Different taxes have different incentive effects.
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The Laffer Curve
Militant Supply Siders
Size of National Pie
% Taken for Taxes
0% 100%
This is simplistic. Different taxes have different incentive effects.
![Page 40: Lectures in Macroeconomics- Charles W. Upton The Laffer Curve.](https://reader030.fdocuments.in/reader030/viewer/2022032704/56649d635503460f94a461aa/html5/thumbnails/40.jpg)
The Laffer Curve
End
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